the nation’s lenders have rebuilt capital to the point where they no longer pose a threat to the economy.
“The banks will not get this country in trouble, I guarantee it,” Buffett, chairman and chief executive officer of Omaha, Nebraska-basedBerkshire Hathaway Inc. (BRK/A), said in a phone interview last week.
“The capital ratios are huge, the excesses on the asset side have been largely cleared out.” ...
Buffett’s firm has investments in at least four of the seven biggest U.S. lenders by assets, including a stake of more than $14 billion in San Francisco-based Wells Fargo & Co. (WFC), $5 billion in Bank of America and warrants that allow it to buy $5 billion of Goldman Sachs Group Inc. shares. Berkshire also has a holding in U.S. Bancorp.
“Our banking system is in the best shape in recent memory,” Buffett said.
Banks have done little to address incentives that encourage excessive risk-taking even as balance sheets have improved, Michael Mayo, an analyst at CLSA Ltd. and author of “Exile on Wall Street,” said today. Compensation on Wall Street still favors short-term profit over long-term results that would benefit shareholders, he said.
“Twenty years of incentives that were out of whack have not been fixed,” Mayo said in an interview on Bloomberg Television. “You’re still going to have bank CEOs make a lot of money today, have their checks cashed, and be gone when the problems hit in the future.”
JPMorgan Chase & Co.’s trading loss of at least $6.2 billion last year rekindled concerns about the risks lurking on bank’s balance sheets.
It also called into question whether CEOs could keep tabs on those risks, said Neil Barofsky, former inspector general of the Troubled Asset Relief Program, which administered the bank bailouts.There is a reason that the Bank of England's Andrew Haldane refers to the banks as 'black boxes'.
“There’s so much opacity with these institutions,” Barofsky said on Bloomberg Television. “It’s really almost impossible to tell where those risks are.”
Investors, too, have signaled their doubts about banks’ accounting. Even after last year’s stock rally, Citigroup, Bank of America, Goldman Sachs and JPMorgan all trade at less than book value, a calculation of how much a lender’s assets would be worth minus liabilities.